Confessions of a Free Market Environmentalist

In August, I published an article in the Wall Street Journal titled “Why Ducks Quack for Obama.” Building on Whitney Tilt’s research summarized in this issue of PERC Reports, my article touted user taxes on guns, ammunition, and hunting and fishing equipment to fund fish and wildlife habitat. These taxes are collected under the Pittman-Robertson Act, passed in 1937, and the Dingell-Johnson Sport Fish Restoration Act, passed in 1950. Both are examples of how the federal government can help produce environmental amenities—in this case, fish and wildlife habitat protection and restoration.

Thanks to President Obama’s relentless efforts to pass gun-control legislation, gun and ammunition sales have skyrocketed, and along with them, revenue from Pittman-Robertson taxes. The result is what some sportsmen are calling the “Obama bump.” More than $760 million was collected from Pittman-Robertson taxes in 2014, up from $310 million in 2008.

By touting these taxes, I should not have been surprised when some of my conservative friends questioned my free-market credentials. “Are you really supporting more taxes?” they asked. Like any good economist, I defended my position by resorting to economic theory. Fish and wildlife habitat are public goods subject to the free-rider problem. This means that if one group provides funding for wildlife habitat, others who don’t pay can still enjoy the benefits. By taxing users—hunters and fishers—the government can help overcome the free-rider problem by forcing those who buy equipment to pay. Of course, as Whitney Tilt and I both point out, there are still numerous free riders—bird watchers, hikers, and mountain bikers, to mention a few—who benefit without paying the user taxes.

To this economic justification, my economist friends reminded me that my article ignored public choice theory, one of the basic building blocks of free market environmentalism. Public choice theory suggests that it is difficult to hold politicians and bureaucrats accountable for spending the user-pay taxes as they were intended. I pleaded guilty but defended myself on the grounds that the Wall Street Journal limited the number of words I could use.

So here I raise the public choice caution flag. Whenever the government taxes anything, even if the revenue is earmarked, there is no end to the pernicious ways in which politicians and their constituencies can capture those dollars for uses other than their original intent. For starters, consider the Social Security tax or federal gasoline taxes. Both are earmarked for trust funds, but both are robbed for other purposes.

In the conservation arena, the early years of the duck stamp program provide a quintessential example of this problem. In 1934, concerned that duck habitat was disappearing as farmers drained their swamps, hunters convinced Congress to require waterfowl hunters to purchase a duck stamp. Receipts from the duck stamp were to be used only for habitat acquisition, while administration and enforcement costs were to be paid from general appropriations. This program appeared to be a way of helping to overcome the free-rider problem, with users paying for what they wanted.

But the duck stamp program didn’t work out that way. The revenue was ultimately captured by budget-hungry bureaucrats at a time when the Great Depression was drying up federal budgets. As a result, although stamp sales generated $635,000 during the first year, none of the funds were used for habitat acquisition. Instead, the revenue went to administration, development, and improvement projects for existing bird refuges, as well as to administration and enforcement of the program. In fact, of the $54 million generated between 1934 and 1958, only 15 percent went toward habitat acquisition.

Things changed in 1958 when farmers, seeking a way of getting paid not to drain their swamps, joined disgruntled duck hunters to pass legislation earmarking general tax revenues—instead of duck stamp funds—to purchase waterfowl habitat. In the first year, land acquisition expenditures increased ten-fold, and the user-pays principle fell by the wayside. As PERC scholars Daniel Benjamin, Kurtis Swope, and I concluded from our research, the duck stamp program shows that “the insulation of market solutions from political forces is easier said than done.”

The lesson from past experiments with such taxes is that users who opt to do good by taxing themselves should beware. Expanding the “pay-to-play” model is a way to overcome the free-rider problem and help provide environmental amenities. The challenge is that special interest groups are lurking behind every pot of gold, waiting to divert new tax revenue to their preferred projects.